Tailings disaster highlights risk management role of CSR norms

Topics

Tags

There is a clear convergence of Corporate Social Responsibility (“CSR”) expectations and legal risk for Canadian miners operating abroad. A recent example of this can be found in the recent tailings dam breach at an iron-ore mine run by Samarco Mineração, in the Brazilian state of Minas Gerais. This incident highlights the risks, and risk mitigation opportunities, offered by good CSR practices.

The tailings dam breach resulted in numerous lost lives and homes in communities closely adjacent to the mine. The reputational impacts were immediately felt, with the parent companies quickly implementing a strong public relations campaign to address the disaster head on, albeit after some false starts. In terms of legal risk, an initial fine was levied by the Brazilian government of $66 million. Brazil’s environment Minister has stated that over $7 billion in damages will be sought against the company.

The local legal risk and reputational impacts are joined by risks for parent companies in their home jurisdictions. Recent cases in Canada and the United States suggest that claims could be raised not only in Brazil, but also in the home jurisdictions of parent companies. Across Canada, litigation has been brought in the last number of years seeking damages against Canadian parent companies for alleged harmful acts of their subsidiaries abroad.

The viability of these types of cases in Canada is yet to be determined. Nevertheless, they point to real legal risks which intersect with CSR practices of Canadian companies working abroad. In particular, a common theme across all of these cases has been that CSR standards have been used by Plaintiffs to set the standard of acceptable conduct of companies operating abroad. In other words, regardless of local legal requirements, Plaintiffs argue that the companies being sued should have followed CSR standards and that failure to do so amounts to a tort for which damages can be sought. CSR standards most often include those standards endorsed in the Government of Canada’s CSR Strategy for the Extractive Sector (“CSR Strategy”), in particular the IFC Performance Standards and Guiding Principles on Business and Human Rights.

Environment Health and Safety (EHS) is an area of CSR that many Canadian do quite well. But when faced with highly variant legal expectations in different global jurisdictions, it may be unclear what the appropriate standard is for EHS management.

Best practice comes from a variety of sources that EHS experts are quite familiar with. But in light of these legal and reputational risks, it would make sense for Canadian companies to ensure that whatever standards are being applied, that they meet or exceed the CSR standards endorsed in the Government of Canada’s CSR Strategy.

There are technical considerations that should be navigated with specialist experts in tailings management. There were various models to consider with special reference to the type of operation. Waste can be disposed of in open pits, as backfill in underground mines or disposed offshore and co-disposed with other waste streams. Quality control and oversight should be used post-design, especially during a mine’s construction and building phases. This includes inspections, maintenance and monitoring during construction and operations.

These and other aspects of the management of tailings are addressed in detail in the CSR standards endorsed by the Government of Canada. For example, the World Bank EHS Guidelines for the mining sector, which forms part of the IFC Performance Standards, necessitates regular inspections of tailings dams with response strategies where potential weaknesses are identified. As such, utilizing these standards as a baseline can be a good way to initiate and guide discussions around proper risk management, above and beyond local legal requirements.

In addition, CSR standards like the IFC Performance Standards can, if implemented, guide other related considerations that could affect overall project risk. For example, the IFC Performance Standards set clear requirements for community health safety and security, including development of emergency response plans and contingency planning for any communities that could be affected by a disaster, even one with a remote likelihood.

The IFC Performance Standards also provide guidance on voluntary or involuntary resettlement of communities where necessary in light of mining activity. Whether through consultation and/or compensation, it may be necessary to implement strategies for resettlement for affected communities in some situations.

Doing so could avoid health and safety risks affecting communities adjoining a mining operation and manage the human rights and other risks associated with resettlement.

As an added side benefit, these same standards will be applied by many financing banks in evaluating whether to invest in a project. So, in addition to managing legal and reputational risks, it can make good business sense.